Transplantation tolerance, or the permanent acceptance of an allograft without the need for chronic immunosuppression, has remained clinically elusive. Strategies to induce tolerance through the production of lymphohematopoietic chimerism, though successful in small and large animal models, have been hampered by the toxicities involved in conditioning the recipient. Host conditioning regimens have traditionally required elements to eliminate or inactivate host-alloreactive T cells and cytoreductive treatment to liberate niches within the bone marrow microenvironment for allogeneic engraftment. Recent advances in stem cell biology have provided data indicating the requirement for cytotoxic therapy can be overcome by using very large doses of HSCs. Possible explanations of this observation have included improved competition of donor stem cells for marrow niches and diminished frequencies of cytotoxic T lymphocyte precursors by the direct interaction with hematopoietic stem cells. A component of the bone marrow that has largely been ignored and is poorly understood, is the MSC. These stromal elements, occurring in very low frequency, are multipotential cells that can be induced to differentiate into bone, muscle, adipocytes, myocytes, and brain and share many functional and phenotypical characteristics of thymic stromal cells. Further, they can provide regulatory signals that inhibit or promote lympho- and myelopoiesis, differentiation, and proliferation and secrete potent molecules, such as TGF-beta, SDF-1, IL-7, and FGF that affect T and B cell migration. Interestingly, the transplantation of bone fragments for stromal microenvironment in conjunction with HSCs has led to increased hematopoietic engraftment and transplantation tolerance. We have shown that transplantation of the bone marrow microenvironment without HSCs can also lead to the permanent acceptance of murine cardiac allografts. The separate contributions of bone and MSCs in these observations are unknown. Our preliminary studies suggest that MSCs can inhibit T cell proliferation in the mixed lymphocyte reaction, prolong skin graft survival in baboons, and home to the baboon bone marrow compartment, thereby potentially influencing the host microenvironment. These observations have led us to hypothesize that MSCs have immunomodulatory properties and play a major role in the induction of transplantation tolerance. The first specific aim will test the ability of mouse MSCs to engraft in the bone marrow and thymic microenvironments and to alter host T cell repertoire. The mechanism of effect on the host immune system will be explored to determine whether MSCs directly affect host T cells or whether MSCs induce a CD8 autoregulatory subset in the host. Specific aim 2 will test whether MSCs can function as facilitators of HSC engraftment in lethally irradiated mice. We will also test whether MSCs can eliminate the need for high dose HSC in minimally conditioned mice. Insights gained on the role donor MSCs play in allograft acceptance may then be applied to our pre-clinical baboon model for development of novel pre-clinical cellular therapies in transplantation tolerance.